Indian Partnership Act
Conduct of the Business: Section 12
Who runs the firm, and who decides when partners disagree? Section 12 answers both. Every partner has a right to take part in the business and a duty to attend diligently to it. Differences on ordinary matters are settled by a majority, after every partner has had his say; but a change in the nature of the business needs the consent of all. Every partner may inspect and copy the books, and after a partner's death, so may his legal representatives. All of it applies subject to contract between the partners.
Ordinary matters by majority against a change in the nature of the business by unanimity, and the other clauses of Section 12
1. The Provision
§ Section 12, subject to contract between the partners (a) every partner has a right to take part in the conduct of the business; (b) every partner is bound to attend diligently to his duties in the conduct of the business; (c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; (d) every partner has a right to have access to and to inspect and copy any of the books of the firm; (e) in the event of the death of a partner, his heirs or legal representatives, or their duly authorised agents, have a right of access to and to inspect and copy any of the books of the firm. |
2. The Right to Take Part, and the Duty to Attend
§ Two sides of the same clause • A right, clause (a). Every partner, however small his share, may participate in the conduct of the business; exclusion is a serious grievance and may ground dissolution by the court under Section 44. • A duty, clause (b). He must attend diligently to his duties. A partner who neglects the business may be liable for loss caused by wilful neglect under Section 13(f), and persistent neglect may justify dissolution. • No remuneration. Taking part does not by itself entitle a partner to payment: Section 13(a). Remuneration must be provided by the deed. • Subject to contract. The deed may entrust management to one or more partners, leaving the others as sleeping partners, as K. D. Kamath & Co. v CIT, (1971) 2 SCC 873 accepted. |
3. Decisions: Majority and Unanimity
Kind of decision | How it is taken | Examples |
|---|---|---|
Ordinary matters connected with the business | By a majority of the partners, after every partner has had the right to express his opinion | Choice of suppliers, pricing, engaging staff, extending credit, routine purchases, opening a bank account with a particular bank |
Change in the nature of the business | Consent of ALL the partners | A cloth business taking up money lending; a trading firm turning to manufacture; adding an entirely new line of business |
Variation of the partnership contract | Consent of all, under Section 11 | Altering profit shares, admitting a partner, changing the duration |
Admission or expulsion of a partner | Consent of all, s. 31; expulsion only under a power in the deed, s. 33 | Bringing in a new partner; expelling an existing one |
§ How the majority must act • Hearing first. A decision taken without giving a partner the chance to express his opinion is open to challenge; the right to be heard is written into clause (c). • Good faith. A majority must act bona fide in the interest of the firm, as Section 9 requires; a decision taken to injure a partner is not protected. • Counting heads. The majority is of partners, not of capital or profit shares, unless the deed provides otherwise. • What a majority cannot do. Change the nature of the business, vary the deed, expel a partner without a power in the deed, or deprive a partner of his statutory rights. |
4. Access to the Books
i. Clause (d). Every partner may have access to, inspect and copy any of the books of the firm. The right belongs equally to a sleeping partner.
ii. Purpose. It gives effect to the duty in Section 9 to render true accounts and full information.
iii. Through an agent. Inspection may ordinarily be made through an agent, such as an accountant, where the partner cannot attend himself, subject to reasonable conditions protecting confidential information.
iv. Books of the firm. The right extends to the firm's books of account; the deed may regulate where they are kept and when they may be inspected.
5. Legal Representatives of a Deceased Partner
§ Clause (e) The right. On the death of a partner, his heirs or legal representatives, or their duly authorised agents, may have access to and inspect and copy the books of the firm. Why it exists. The estate is entitled to the deceased partner's share, which must be ascertained from the books; without access, the representatives would have to accept whatever the surviving partners state. Related rights. Section 9 requires true accounts and full information to be rendered to a partner or his legal representative, and Section 37 gives the estate an option of interest or a share of profits until accounts are settled. |
6. Frequently Asked Questions
Can a majority of partners change the firm's business?
No. A change in the nature of the business requires the consent of all the partners, under Section 12(c).
Can a partner be excluded from management?
Only by contract. Section 12(a) gives every partner the right to take part, but it applies subject to contract; wrongful exclusion may ground dissolution by the court.
Can a sleeping partner inspect the books?
Yes. Section 12(d) gives every partner the right of access, inspection and copying.
Do the heirs of a deceased partner have any right to the books?
Yes. Under Section 12(e), his heirs or legal representatives, or their authorised agents, may inspect and copy the books.